高露潔 (CL) 2009 Q3 法說會逐字稿

Good day and welcome to today's Colgate-Palmolive company third quarter 2009 earnings conference call.

Today's call is being recorded and is being simulcast live at www.colgate.com.

Just as a reminder there might be a slight delay before the question-and-answer session begins due to the web simulcast.

At this time for opening remarks, I would like to turn the call over to the Vice President of Investor Relations, Ms.

Bina Thompson.

Please go ahead.

Thank you, Mindy, and good morning everybody.

Welcome to our third quarter earnings release conference call.

With me this morning are Ian Cook, Chairman, President and CEO; Steve Patrick, CFO; Dennis Hickey, Corporate Controller; and Ed Filusch, Treasurer.

This conference call will include forward-looking statements.

These statements are made on the basis of our views and assumptions as of this time reason and are not guarantees of future performance.

Actual events or results may differ materially from these statements.

For information about certain factors that could cause such differences, investors should consult our annual report on Form 10K filed with the Securities and Exchange Commission; and available on our website including the information set forth under the captions risk factors and cautionary statements on forward-looking statements.

And during the call, we will discuss organic sales growth, which is sales excluding the impact of foreign exchange, acquisition and divestitures; and we will also discuss our results and expectations excluding charges relating to the 2004 restructuring program, which was completed last year, and impacts only prior periods.

A full reconciliation of these measures with their corresponding GAAP measures is included in the press release and the Company's financial statement and is posted on the Investor Relations page of our website at www.colgate.com.

And we'll be glad to answer any questions that you may have including or excluding these items as you wish.

We are delighted that our strong momentum has continued through the third quarter.

As in the second quarter, our simple financial strategy is working effectively, and you know that strategy well.

We increase our gross margin while maintaining overhead.

This gives us funds to both increase advertising to grow volume as well as to increase operating profit and ultimately cash generation.

Our gross margin increase of 280 basis points was very encouraging.

The Company's funding the growth program continued to deliver meaningful savings and played a significant role in the strong increase.

And as would you expect, raw materials prices have come down as we've gone through the year; although we still experience negative transactional effect due to the purchasing of raw materials and inventory in dollars by our overseas subsidiaries.

In Venezuela alone this impact was 60 basis points.

As you're aware, exchange control limitations in Venezuela have continued; and as a result, the Company's Venezuelan subsidiary has begun to settle certain of its US dollar denominated liabilities with dollars obtained through securities transactions in the parallel market at an exchange rate less favorable than the official rate.

As a result in the third quarter of 2009, CP Venezuela incurred $47 million of higher costs related to the remeasurement of U.S.

dollar liabilities to be settled with proceeds from these transactions; $25 million of which is included in gross profit for liabilities related to the purchase of inventory and $22 million of which is included in other income and expense net for all other liabilities.

Additionally, in order to manage its overall currency exposure CP Venezuela has purchased $122 million of U.S.

dollar denominated bonds issued by a Venezuelan state owned corporation and U.S.

dollar linked devaluation protected bonds issued by the Venezuelan government.

We had told you last quarter that advertising would be up sequentially from the second quarter both on a dollar basis and as a percentage of sales, and that is exactly what happened.

As you'll hear when I review the divisions, increased spending has helped to drive market share gains in many markets around the world.

We expect further increases in advertising in the fourth quarter when spending should be up year-over-year.

Absolutely and as a percent of sales, in support of robust new product offerings.

This will be both media and in-store activity.

So all this is resulted in the double-digit operating profit and EPS growth we reported this morning.

We noted the strong cash generation in our press release, up 34%, as well as the strong balance sheet and excellent progress on our working capital.

We expect to use some of this cash to continue our share repurchase program.

For the full year, as we told you, we expect to spend about $1 billion on stock buybacks after having increased our dividend payments early in the year.

Return on capital increase meaningfully to 38.1%.

All in all a very pleasing quarter.

So let's turn to the divisions starting with North America.

Our results in North America were excellent.

As highlighted in the press release, innovative new products supported by healthy levels of advertising helped us achieve good top and bottomline growth with shares stable or up in virtually all categories.

This quarter we launched the new integrated marketing campaign in support of the Colgate-Palmolive total equity.

As you know, we now offer a number of toothpaste variance under the Colgate Total brand, including most recent launch Colgate Total enamel strength.

The new campaign leverages Colgate's leadership among dental professionals with one of the brands celebrity spokeswomen, Brooke Shields, to help reinforce the therapeutic benefits of Colgate Total that consumers care about.

The campaign includes TV and online consumer advertising as well as a compelling hygienist focussed initiative.

The Colgate Oral Health Advisor Program designed to recognize the contributions and important role of hygienists and educate them about Colgate Total.

The toothbrush category, in August we launched the new Colgate 360 Degree Actiflex, and it's already contributing to the Colgate 360 franchise.

Designed by a prominent European design firm that actually also designs for Porsches and BMW, the brush boasts a unique flexible bridge that gently bends and angles as you brush.

It cleans in all directions and is an innovative addition of our market leading line of Colgate 360 brushes, which all deliver a healthier whole mouth clean.

Colgate Max White toothbrush launched earlier in the year, has now achieved almost three share points.

This toothbrush has a unique brush design with a circular bristle pattern and a unique tooth polishing star proven to remove stains to help reveal the natural whiteness of your teeth.

Colgate Max White toothpaste and toothbrush are often promoted together to encourage consumers to employ a regimen approach to their oral care.

And as mentioned in the press release, Colgate Wisp continues to do well.

The launch of Colgate Wisp Whitening, in the first quarter of 2010 should further strengthen share for this breakthrough new product.

So looking ahead volume in North America is expected to increase mid single-digit in the fourth quarter and for the full year as well.

Organic sales should grow low single-digit in the fourth quarter and mid single-digit for the full year.

Operating profit is expected to grow double-digit in the fourth quarter and high single-digit for the full year; up absolutely and as a percent of sales.

Europe South Pacific.

We are very encouraged by what appeared to be early signs of positive macroeconomic conditions in Europe.

GDP was virtually flat in the third quarter as compared to a decline of over 2.5% in the first quarter.

Pleasingly, volume growth, excluding divestments, was solid in our three biggest subsidiaries in the region, France, the UK, and Germany.

Overall the volume growth of 3% on an ex-divested basis was the best for the division in more than a year.

New product innovation across categories accelerated in this quarter as we said it would.

Most exciting launch in the third quarter was that of Colgate Sensitive Pro Relief.

This toothpaste contains the exclusive and proprietary pro-origin technology, which effectively plugs the channels that leads to sensitive tooth nerves thereby blocking transition of heat, cold air and pressure.

While other sensitivity toothpaste primarily numb sensitivity pain and require continued use over a four to eight-week before providing significant relief, Colgate Sensitive Pro Relief is the first and only toothpaste clinically proven to deliver instant and lasting sensitivity relief.

Technology was first introduced to the dental profession in April of this year in the form of an in-office product.

The mass market at-home use product was launched at the Worldwide Dental Congress in Singapore in early September.

Colgate Sensitive Pro Relief began shipping in the UK in late September.

While still early days, the reaction from the trade, the profession and the consumer has been extremely positive.

Media and other integrated marketing activities will begin in November.

Manual toothbrush shares are strong across the region up to 21 on a year-to-date basis, reaching a record level of 22.1 in the most recent period.

Colgate 360 Actiflex has just been introduced across Europe, South Pacific and this should help further increase manual toothbrush shares.

Dish washing liquid category, we are holding our leadership position to 23% with a share of 23.4% in the most recent period keeping private label in check by launching relevant and innovative value-added new products.

Late in the quarter, we launched Palmolive Pure & Clear first launched in the US earlier this year.

This should help provide continued momentum in the business.

Looking ahead, volume in Europe South Pacific is expected to be up low single-digits for the fourth quarter and flat for the full year with organic sales growing slightly in the fourth quarter and for the full year.

Operating profit is expected to grow strong double-digit in the fourth quarter and should decline modestly on an absolute basis for the full year, but be up as a percent of sales.

Latin America.

Business remains solid in this region with yet another quarter of positive volume growth, sequentially improving throughout the year and continued strong double-digit organic sales growth.

This is, of course, reflected in market share gain.

Our shares are up on a year-to-date basis in toothpaste, Tooth brushes, mouthwash, bar soap and liquid cleaners; and we are holding our leadership position of over 50% in dish washing liquid.

As mentioned in the press release our regional toothpaste share reached a record 78.5% year-to-date.

In Mexico, our share is up 40 basis points on a year-to-date basis to 85.6 with the most recent lead at 86.2.

And we've seen good results both on our lower price base business as well as in the premium part of our portfolio such as the Colgate Total franchise.

In Venezuela our share is up almost one full point on a year-to-date basis to 90.4 with the most recent period at 90.9.

here Colgate Total is doing well also growing from a 13% share in 2006 to over 26% in the most recent period.

Tooth brushes, our share in Mexico is up on a year-to-date basis up over a point to 38.7 narrowing the gap for the number one player.

In Columbia, our share is up on a year-to-date basis almost two points, consolidating our leadership position of almost 45% despite some recent aggressive competitive activity.

And in mouthwash our share is up almost three points across the region, with strong performance in Mexico, Brazil, Venezuela, Central America and Columbia.

In Brazil, Colgate Plax Complete Care, a new product launched earlier this year has helped us regain market leadership in the most recent period.

And in bar soap we consolidated our leadership position across the region with a year-to-date share at 28, up almost half a point with the most recent lead at 28.6.

We've seen good results from both our Palmolive brands the number one brand across Latin America as well as Protex.

Protex is the leading brand in the anti-bacterial segment and has been doing particularly well given the recent heightened awareness about proper hygiene to prevent flu like illnesses.

Looking ahead, volume in Latin America is expected to grow at levels similar to this quarter for the fourth quarter and a full year.

With organic sales growing double digits for both periods as well.

Operating profit is expected to grow double-digit for the fourth quarter and full year up absolutely and as a percent of sales.

Greater Asia, Africa.

The modest decline in volume in this region was compared to a very strong volume growth in the third quarter of 2008 of over 11%.

Volume growth in the low to mid single-digit range in Asia was offset by continued weakness in Africa Middle East.

Market shares remain strong in key categories such as toothpaste, toothbrush and mouthwash.

In China, our toothpaste share is at 31.7%, up 80 basis points on a year-to-date basis.

In India, recent share readings are up over 50%.

Rural markets in India deep distribution initiatives behind our entry price Colgate offerings have driven share; while in the urban markets new TV campaigns have driven share for Colgate Max Fresh and Colgate Active Salt.

In the Philippines, our share reached a record 53.4% on a year-to-date basis.

And in Russia our share is up 80 basis points on a year-to-date basis to 34.6%.

Tooth brushes, we continue to offer a portfolio of new products with offerings in every price here to appeal to a wide rage of consumers.

In Malaysia, for instance, share gains have come from the premium priced Colgate 360 as well as the value priced Colgate Twister.

Shares in that country are at 32.7% on a year-to-date basis with our most recent shares at 34.5%.

We've made great progress in Russia where Colgate 360 Deep Clean helped grow our share 200 basis points on a year-to-date basis to a new leadership position, 51.5%.

And our mouthwash business continues to grow as well as we continue to launch it throughout the division.

In our lead country, Thailand, our share is up 7 points year-over-year to 14.6% with the two most recent readings over 16% buoyed by two line extensions, Colgate Herbal Salt in the first quarter of this year and Colgate Ice in July.

Singapore, our year-to-date share is just under 10%; but our most recent share is at 13.1% as a result of both oral health month and the launch of Colgate Sensitive Pro Relief at the international dental conference call.

And Russia is up almost 8 points year-over-year to 35%.

More recent entries are Malaysia, Hong Kong and the Philippines which are all exhibiting excellent momentum.

Looking ahead, volume in greater Asia, Africa is expected to increase mid to high single digit in the fourth quarter growing modestly for the full year 2009.

Organic sales should increase at least high single digits for the fourth quarter and full year.

Operating profit is expected to grow double digits for the fourth quarter and full year, up absolutely and as a percent of sales.

And Hill's, as expected we saw improvement in Hill's volume performance in the third quarter from the second quarter 2009.

We told you last quarter that due to the necessity of taking substantial price increases to help offset significant increases in commodity costs, Hill's pricing was uncompetitive in the market.

Through various promotional activities this quarter and next we've begun to correct the situation and that is reflected in the gradual improvement in the business.

As in the Colgate business, new products and impactful integrated marketing communications programs are critical to driving results at Hill's.

A new line of treats we told you about last quarter has met with great success here in the U.S.

Initial support from customers has been overwhelmingly positive with many taking on additional SKUs and devoting additional shelf space to the new line.

Consumers are also excited about these new treats.

After the kick off of our marketing programs, consumption at one of our top retailers doubled from one week to the next.

Another exciting new product launched in Europe is Science Plan Adult Healthy Mobility Canine.

We've already told you about our successful Prescription Diet J.

D.

products as therapeutic food for dogs with arthritis which is clinically proven to interrupt cartilage degradation and reduce joint inflammation leading to mobility improvement in just 21 days.

Science Plan Canine Adult Healthy Mobility is specially designed for healthy pets that show the early signs of joint problems who have not yet been diagnosed with a more serious condition.

It contains the same nutrients as J.

D.

to support active mobility, joint flexibility, and comfortable movement.

Initial customer feedback on this product has been very positive.

In Japan this year we launched a very innovative campaign to support our Life Stages diet.

In-store activity and public events have been staged around two major holidays, coming of age and senior celebration.

So looking ahead, volume at Hill's is expected to decline modestly in the fourth quarter with declines in the mid single-digit for the full year.

Organic sales should be relatively flat for the fourth quarter and full year.

Operating profit is expected to increase modestly for the fourth quarter and full year.

To sum up then, we are very pleased with the continued strong results across our divisions.

Our four strategic initiatives with which you are all familiar: getting close to the consumer, customer, and the profession, effectiveness and efficiency in everything we do, innovation everywhere, and a focus on building strong leadership are working well.

We feel confident that we have the people and programs in place to continue to deliver double-digit earnings growth for the balance of this year as well as in 2010.

And, Mindy, that's the end of my prepared remarks and now we would like to open it up to questions.

Thank you.

(Operator Instructions)

Your first question comes from Andrew Sawyer of Goldman Sachs.

Yes, thank, guys.

I was wondering if you could talk a little bit about how you're thinking about reinvesting against the business as we move into the fourth quarter here and presumably start to get a little more tailwind from foreign exchange; and now that you're seeing a little bit more in the way of gross margin expansion, I guess you did allude to some--a little bit of negative pricing in the U.S.; but can you talk about how we should think about what you guys are doing from an investment perspective both on price and A&P as we look forward to the next couple of quarters with more resources that you have to spend?

Sure, Andrew, this is Ian.

The--first let me just comment on your US relative to price.

Interestingly, basically all of that price in the US was related to trial generating couponing for the new products we have in the second half of the year.

So it wasn't price promotion, it was trial generation.

But if you come back to advertising in general.

I think as we had said at the beginning of the year, we wanted to start prudently.

And our first order of business was to rebuild gross margin, which as you say we have now done.

Our advertising in the fourth quarter will be up both in absolute terms and on a percentage to sales basis compared with prior year.

And as you know, we have stepped up advertising through the first three quarters of this year.

And the same comments apply as I have mentioned before.

Number one, media costs continue to be favorable overall.

So you continue to get more bang for your buck.

Two, we continue to see competitive spend levels in key markets in key categories, meaningfully down year on year.

So in addition to the increased impressions for the same dollar, we are getting relatively more exposures than our competitors in those key markets.

And finally we continue to use in-store, we call them integrated marketing communications to connect with consumers and many of those come out of the so-called gross to net or trade spending, which isn't picked up in the advertising line.

But continuing to make the kind of progress we said we would to maintain the brand growth and the share progress that Bina talked about in her prepared remarks.

Maybe just asking a little bit different way.

As I look at where currency rates stand today and if we assume that you can hold a 59 to 60 type gross margin and organic sales are in the mid single-digit range, I come up with dollar gross profit growth into the mid-teens over the next couple of quarters.

And I just wonder how much--as you think about dropping that through versus what we think should be spent back to help reinforce the volume growth?

We said in general terms, Andrew, that if we exceed our goals in terms of gross margin through foreign exchange or at cost savings programs, we tend to invest the half of it and drop the other half to the bottomline.

So I would lay that out as a general principle.

And just one quick housekeeping one.

On the Venezuela piece, what should we think of as kind of the ongoing hit that you're going to take from that and how big are the cash balances sitting there today?

We raised the Venezuela information because we thought it important you understand it.

Having said that as you know, we have been in Latin America for a long time and we face--have faced these situations before and have a very effective program, which we are now implementing in Venezuela to both maintain operational business progress there and protect the balance sheet.

From an operating point of view, I think as you look forward you can expect to see similar in terms of investment behind our material and finished goods sourcing remembering that we make the vast majority of our Venezuelan product sales in Venezuela, which is a plus.

But you can expect about the same level going forward; and from a gross profit point of view, about the same level overall for the Company in the fourth quarter as we have seen for the third quarter.

To your second point without getting into a hyperinflationary discussion, that is a very complex area relating to hyperinflationary accounting versus timing of devaluation.

We are obviously all over it but were a deval to occur before the end of this year without any change in accounting, it wouldn't have a material impact and we'll obviously stay close to how events unfold in 2010.

Thank you very much, Ian.

(Operator Instructions)

Well take our next question from Olivia Tong of Banc of America Merrill Lynch.

Hi, good morning.

Just wanted to talk a little bit more about pricing.

It sounds like from Bina's commentary that North American pricing could possibly be down in Q4.

Is that just continued similar to Q3--a continuation of the support of new products, or is there a shift change as far as a promotion there?

There is certainly, Olivia, no shift change.

It is all to do with trial generation for the new products in North America.

So no promotional shift change.

And we provided that investment behind the trial generation on top of increased advertising and on top of healthy expansion in gross margin.

Got it.

Thanks.

And just a follow up on A&P.

You mentioned that you're expecting year-over-year increase both absolutely and as a percentage of sales.

I'm just wondering sequentially what your thoughts are relative to the 10.7% margin that you did this quarter?

The--sequentially the fourth quarter will be lower than the third on a percentage to sales basis; but more competitive absolutely, and in the marketplace relative to the fourth quarter last year and the second half of this year, which is what we had said previously is ahead of the first half of 2009.

Got it.

Then just lastly on Latin America, just wondering, Latin America obviously continues to be very strong.

But relative to your mid single-digit outlook provided last quarter, looks like volume came in a little bit lighter than that at plus three.

So just wondering if you could talk through that a little bit.

No, we were quite pleased with our Latin America progress.

We've been targeting all along a mid teens organic growth rate, which as Bina said and you have seen, we have sustained in the third quarter expecting to round out the EF in that same space with pricing in the low--in the low teens for this year.

And our expectation would be, we would accelerate our volume pace from the exit point this year in Latin America.

Was pricing better than you thought in Latin America?

Slightly.

Slightly.

Got it.

Okay.

Thanks very much.

We'll take our next question, Ollie Debash from Bernstein.

Hey, guys.

How are you?

I was wondering whether you could broaden the volume discussion a little bit please and it looks like some of the volumes, at least in three of the areas were a little bit below what you had thought last quarter; and if I could propose a couple of options.

Not that it's a multiple choice, but propose a couple of options and let me know if it's any of these, how much or if it's something else.

It's--one of the things I thought might have been happening is increased competitive pressure and you said that that doesn't seem to be the case.

I thought maybe you'd benefited, perhaps, somewhat from trade down in some of your non-oral care categories, maybe people trading back up, I don't know if that's an option.

Some of your competitors had said that there's a lot more SKU rationalization going on and maybe they're affected, thought maybe you would be affected.

One of the more important one's to me is there a link between your advertising change and volume trends or plain old category weakness.

I'm trying to get underneath what was surprising among those volume changes.

You know, Ollie, from a strategic point of view we were actually quite pleased and inspired by our volume progress.

I mean, you are looking at organic growth of 7% on top of 9% in the same quarter last year; and a shift to a 2% positive volume overall 2.5 on the Colgate business as you saw in the third quarter.

If you go into the areas where the performance was either negative or less than one might have said before, Hill's I think if you heard the prior answer, I think we answered the--Hill's we made an adjustment as we said we would and we very much see sequential progress from the second quarter to the third quarter.

Reality was--the impact of that in the marketplace came towards the middle of the quarter, which meant that we ended up modestly down, rather than modestly up as we had hoped.

Now on that Hill's business, a second element of our strategy going forward in addition to the promotional activity, has been a strategic move to reprice and resize the business, which takes absolute cash down and makes it more affordable for consumers to by.

That will be affected in the marketplace on top of the promotional activity in the first quarter of 2010, which we think will be a more substantive strategic solution to the matter we were trying to address.

And we are expecting, as Bina said, a modest volume decline in the fourth quarter as we transition to that new packaging with maybe some inventory adjustment to get from the one package to the other package.

Asia was really two things.

One, the Central and Eastern European and African markets, very weak underlying fundamentals and a continued need to take pricing, which we have done at the expense of volume.

And secondly, a comparison quarter on quarter relative to pricing activity in the prior year, which saw Asia, Africa at a double-digit volume growth.

So the relativety going forward changes now.

We forecast easing in Central Europe and Africa; and in terms of Asia, an easing comparison and a--no more anniversary with that pricing increase.

So those really explain the two negative performances, and none of that fundamental to a change in promotional activity or other marketplace dynamics.

Very complete answer.

In terms of pricing that you mentioned a couple times just a follow on.

Certainly a lot of the pricing went to offset commodity then foreign exchange, that is your strategy.

Now that both of those, or at least one of those seems to be retreating, FX, what are the reasons if you could enumerate them of, you're not going to have to give it back at some point?

Some argument would be, it may not just be lapping you may have to give back some of the pricing that you had taken to offset some of those macro trends.

We've answered this one before.

In general terms with the exception of the Pet Nutrition business, the pricing changes that we made have been effected in the marketplace.

Therefore, you see the new price reality at shelf.

I think the future has everything to do with building categories and building brand.

That is what retailers and manufacturers are about, reaching a consumer who may, if 2010 starts to turn economically as all the forecasts hint at, that then becomes the goal.

And that is a combination of factors including innovation, including perceived value and performance of products, including other promotional ways of convincing consumers to engage with a brand like professional recommendation or promotional activity, not price related targeted to a particular group of consumers, say Hispanics here in the United States.

So there's a patter play of actions that one can take building an overall plan to deliver category and brand growth; and invest part of your margin gain in that so you get to the same place, but not driven by price, which over a medium or a long time becomes a zero sum gain.

So it's a strategic question and an ability to deliver growth in a balanced way and I would say strategically we have always had a balanced portfolio.

We have products at the premium end and we have products at the entry price point end if you go around the world in any of our major markets.

Interestingly, as we have observed the consumer behavior thus far has stayed with the brand of choice before they enter the prices, which in many places is at the higher end of our price offering; which I think underscores the point that growth isn't just driven by price.

And you believe that your competitors are following the same?

Are you seeing any more competitive pressures given obviously everything that we are hearing from some of them?

I can't answer the first question.

I guess you'd have to ask them.

As to the second, in the marketplace I think we are demonstrating we can make progress with the go-to-market strategy and model that we have.

Thank you as usual.

Our next question comes from Lauren Lieberman of Barclays.

Hi, good morning, this is Ryan Bennett sitting in for Lauren today.

I thought you sounded different, Lauren.

Following up on Ollie's question about competitive pressures, conceptually.

There have been some real disruptions in the oral care competitive environment over the last three years, as competitors have been integrating and learning how to manage those new businesses.

Oral B.

and Listerine clearly come to mind there, and certainly the toothbrush and mouthwash categories have been areas of really outsized market share gains for Colgate over that period.

So looking ahead now, now that the competition has really finished integrating and are aggressively refocused on growth and as they look to recapture three or four points of share they've lost, is there need for Colgate to spend even more on gross margin savings to defend shares from here?

Or, in other words, is the cost of competition going up?

I would say, Brian, the oral care business is a business we understand quite well in the many markets in which we operate it across all of the categories.

We have seen, as you say, good growth in toothpaste, which is the largest of the categories; Tooth brushes, the second, and of course mouth rinse.

And and we have seen activity in different countries and different parts of the world; and I think we have demonstrated imperially an ability to meet that and continue to grow our market share.

So without wishing to sound in anyway casual here, I think we feel that the continued increases in innovation, communication, professional, academia that we make in this oral care space defends us quite well, and positions us well to continue to grow in the future without a disproportionate swing in terms of investment stance.

Okay.

And then just one follow up.

If longer term and not to be fixated on any one number but that 12% of sales figure that was talked about during the restructuring, is that still the ideal advertising level to hit overtime?

Ryan, I think it was an aspirational number and advertise--a ratio is an output not an input.

And it depends on the cost of the medium, it depends on your business objectives.

It depends on the balance between what you want to do at the retail store level versus directly with the consumer; and frankly, as consumer behaviors change coming out of the two years they have been living through, all of those things will be up for grabs in terms of reassessment.

I think when you get through it all, the distillation will be however manufacturers invest their consumer engagement monies, let me call it that, what do you see in terms of the market share over time.

I wouldn't tie it to a ratio number.

Great.

Thanks again so much.

We'll take our next question from Alex Paterson of R.

C.

M.

Yes.

Good morning.

Hey, Ian, the launch of the Total Relief product into Europe, just trying to get a sense how much of an impact that may have had on the volume mix trends for the third quarter; and maybe give a sense of how you see that playing out into the fourth quarter?

Negligible on the third.

We literally just launched in the last month of the quarter.

And difficult to say to say for the fourth quarter.

I could give you early market share data, which pleases us; but I will resist that until we have a more substantive view on the progress of the brand.

We have spent as you know, Alec, considerable time taking this technology to the academic community in oral care.

Now to the practicing community and finally to the consumer.

The sensitivity segment is one that has been--has seen Sensodyne have a lead role for a long period of time.

And we think this will be a journey for to us make progress; but we are up for the journey, and we will report back as we have more meaningful factual data to share with you.

All right.

Sounds fair at this point.

Could you just housekeeping run the gross margin breakdown?

Why am I not surprised to get that from you, Alec?

Well, nobody else asked.

Okay.

The prior year gross profit for the third quarter, 56.4.

As you work your way down to the 59.2, plus 2.1 from price.

Nothing from restructuring.

Plus 2.2 from funding the growth savings.

Negative 1.6 from material prices, a deceleration from prior quarters.

And then 1.10, which is basically all other.

And I think that gets you to the 59.2.

The 1.10 is a positive or negative?

It's 0.10.

Oh, 0.10.

Sorry.

I'm sorry, one tenth, it's a positive, it's just a rounding positive.

Does the Venezuelan impact flow through that one tenth or is it caught up in other numbers.

It's in material prices so 60 basis points is in material prices.

Okay.

And so breaking materials down between transactional and underlying commodity trends?

Don't have that, Alex.

Don't have that.

Okay.

All right.

Thanks very much.

Okay.

We'll take our next question from John Faucher of JPMorgan.

Yes, thank you.

Obviously the volume is starting to improve a little bit sequentially and we are expecting pricing, I think, to move down sequentially as well; and I guess, not just you guys, but all the companies and staples people are worried about elasticity.

So can you give a sense of history in terms of what the elasticities look like; and I realize it's difficult when pricing goes away as opposed to pricing going down.

But is there some way to look at the history of when transactional FX pricing goes away, the volumes bounce back X; or when regular pricing dissipates over time volumes bounce back?

And how do you think that will be different this time versus previous pricing that you've taken?

And I think we are all just sort of struggling trying to figure this out so any thoughts would be helpful.

Thanks, John.

Very difficult to give truly informed information on that question.

I mean, the pricing we have seen in our industry over the last three years, I guess, we haven't seen in the last 20 years neither as an individual year never mind compounded over three.

I guess the way we have looked at the elasticity in each of our categories is that they are relatively inelastic and I think that has played itself out.

I guess the way I would react to your question is to say from an overall company point of view, we are about 2% volume in this third quarter.

We expect moving into the fourth quarter to see that in the 2.5% to 3.5% range stepping up slightly.

Still at the sort of 7% organic level with pricing slightly less.

And then although we haven't finished our budgeting process for 2010 thinking that the volume will accelerate from there into 2010, with similar offset in terms of pricing, pricing decline.

But I really can't offer you a nifty formula that would experientially explain a relationship between one and the other.

We've tended to approach it by business and build it up by business.

Okay.

Thanks.

Sure.

We'll take our next question from Jason Gere of RBC Capital Markets.

Good morning.

I guess I was just going to ask about the nice improvements that you showed in working capital.

I think at least by my calculations this is probably one of the strongest we've seen in years.

I was just wondering if you could put some color around that.

Yes, one second.

We see ourselves--if you work your way down we see ourselves from a receivables point of view, sequentially down on the prior quarter.

And inventories--inventories the same, the same way.

And we expect that progress to continue out in time.

Not to say that we are going to hold at a 0.7 level in perpetuity; but certainly we have an internal goal to work our working capital down as aggressively as we can.

And we said we are going to take on that inventory challenge once we got out of the restructuring, and that's beginning to turn for us.

And I think we are actually quite pleased on the receivable side.

We monitor our world and principal customers centrally every month actually.

And we have, I would say, pretty good control on the receivables which given the pressures around the world we view as quite sound.

With going forward, hopefully, we could see continued improvement here.

But when you look at the interest expense it was a lot lower this quarter, and I would assume part of that had to do with the working capital.

I mean how should we think about that going forward and I think did you talk about continuing with the share buybacks?

We--if I take your last question first, we absolutely as we have done for all of this period, will continue with the share buyback.

And we expect for the full year this year to end up around about that--the same level as last year, about $1 billion.

That's where we are headed.

Relative to interest per se, it's actually mostly to do with lower interest rates.

And we do expect that to continue.

Actually our strong cash performance may change our debt profile slightly; but we think the interest rates will certainly continue through the end of this year.

So the interest performance should continue.

Okay.

And then just a last question just kind of more bigger picture.

You guys continue to talk about stepping up the advertising and about the lower media rates.

But the media industry we've been hearing about rates starting to go up.

I has just wondering if you could talk maybe a little bit about 2010, how much you've committed out there and how you kind of insulate yourself if rates do start to trickle up maybe by the second half of 2010?

Thanks.

Yes.

There's a quality of buy component to this as well, Jason, which is the mix of media that you choose to buy.

A lot of, I think, what you're reading is more in the United States than perhaps in many international markets around the world.

And obviously you have networks and cable and many choices here in the United States.

We--our strategy in general through these times has not been to lock in too aggressively; but rather to monitor, react to the marketplace.

So we are not, we are not locked in at any significant level neither here in the U.S.

or around the world.

We'll take our next question from Andrew Sawyer of Goldman Sachs.

I just had one real quick one.

When we look at corporate expenses being up $38 million or so year on year, is 22 of that coming from the other income item you alluded to on Venezuela?

Part of it, Andrew, of course is pensions.

Okay.

And principally pensions, and I think accruals for perhaps bonus or other payments.

That's good for you, right?

Modest bonuses.

All right.

Any sense of how I should think about that number into the fourth quarter?

About the same.

Okay.

Thanks a lot, guys.

At this time there are no further questions.

Okay.

Well, thanks for being on the call.

I know this was a busy day for you all and thanks for your support.

Thanks to the 38,000 Colgate folk around the world for delivering the results and we look forward to catching up with you on the next call.

Good-bye.

That concludes today's conference call.

Thank you for your participation.